UBS Picks 2 Gold Stocks With Double-Digit Upside Potential

It’s been over 50 years since the world’s currencies were last tied to gold, but the precious metal is still the ‘gold standard’ when it comes to storing and measuring value.

The high value of gold makes it a frequent target for investors – but the natural volatility of the mining industry makes gold stocks a difficult investment. These difficulties can be bypassed by investing in streaming or royalty companies – firms whose business is buying up miners’ output, or buying ownership rights to royalties from the mines.

This is the position taken by UBS analyst Daniel Major, who writes: “In our view the market is not pricing in: (1) spot/higher gold prices; (2) organic growth, creating attractive risk vs reward. In our view the outlook for gold post the US election remains constructive but gaining reliable equity leverage to gold through the miners remains challenging. Against this backdrop streaming/royalty companies continue to offer attractive risk vs reward trading at a discount to historical valuations at spot gold prices.”

With this in mind, Major has picked 2 gold stocks – both on the streaming/royalty side – with double-digit upside potential. We ran them both through the TipRanks database to see what the rest of the Street thinks. Let’s take a closer look.

Franco-Nevada (FNV)

The first stock we’ll look at is Franco-Nevada, a Toronto-based gold company whose operations are focused on both streaming and royalties. Both aspects of Franco-Nevada’s business involve piggybacking on the work of gold miners. In streaming, the company agrees with miners to buy their output at a predetermined price – and then can sell that metal at market prices. On the royalty side, FNV buys landholdings and collects royalties on gold and other precious metals mined on those holdings.

This business requires a solid portfolio of assets. Franco-Nevada’s portfolio is both large and diverse, with no single asset comprising more than 15% of the total. By geographical area, the company’s portfolio is based 85% on the Americas, with the largest portions in Canada and the US, as well as in South America. Significant portions of the company’s assets are located in Mexico and Central America. Of the company’s total commodity assets, 75% are in precious metals. These assets are mainly in gold, but there is also a strong presence of silver in the company’s portfolio.

While this company’s portfolio is well-designed and keeps a diverse profile, the company can still take a hit when an important asset does not pan out. A case in point: Franco-Nevada has a strong stake in the Cobre Panama mine, in Panama – and last year that mine was shut down after the country’s president called for a mining moratorium. It is uncertain when it will resume production, and the ripple effects are still being felt.

In FNV’s last financial release, covering 3Q24, the $275.7 million in revenues were down almost 11% year-over-year although they came in $3.22 million better than anticipated; The 80-cent per share non-GAAP earnings figure was 3 cents per share lower than the estimates.

Looking at the bigger picture, UBS analyst Daniel Major is upbeat about the company’s prospects despite its challenges. He writes, “In our view the streaming/royalty business model remains compelling, despite higher headline valuation multiples… FNV’s growth is dependent on the restart of Cobre Panama and is therefore less certain; but in our view the stock is pricing in limited upside from a restart and any progression towards a potential restart will act as a positive catalyst. At 20x 2026E EV/EBITDA we estimate FNV is discounting ~ $2,250/oz gold.”

Quantifying his stance, Major rates FNV as a Buy, and his $160 price target points toward a 32% increase in the next 12 months. (To watch Major’s track record, click here)

The 10 recent analyst reviews on this stock are evenly split, 5 Buys and 5 Holds, to support a Moderate Buy consensus rating. The shares have a current trading price of $121.26 and an average target price of $151.61, together suggesting a 25% upside potential by this time next year. (See FNV stock forecast)

Wheaton Precious Metals (WPM)

Next up, Wheaton Precious Metals, is another Canadian company. Operating out of the western city of Vancouver, Wheaton is one of the world’s top precious metal streaming companies. Wheaton purchases the by-product metal output of its mining partners, agreeing on a set price in advance, and then sells those metals in the commodity markets. The result: Wheaton and its investors can tap into the productivity of the mining industry while avoiding the risks involved in mining activities.

Wheaton currently has partnerships with 18 operating mines, and is involved with another 28 projects under development. The company is guiding toward 40% production growth by 2028. Wheaton is prepared for the long term, as the operating mines it is involved with have a projected life-span of 28 years.

The company boasts that 93% of its assets are in the lower half of the cost curve, a feature that helps to maximize income. Wheaton has built up a solid reserve to maintain its operations, and as of September 30 this year had $694 million in cash and other liquid assets available.

Wheaton’s top- and bottom-line figures were up in 3Q24, the last period reported. Revenues came in at $308.25 million, up 38% y/y, while the non-GAAP EPS of 34 cents was up 32% from 3Q23. We should note that the revenue figure missed expectations by $4.36 million, but that the EPS was 1 cent better than had been expected.

For Major, this stock simply presents a strong opportunity for investors to play the gold market. He says, “In our view WPM has an attractive growth profile… Given the diversified nature of WPM’s existing portfolio and growth projects, we see limited risks to WPM’s 2028 GEO production target of 800koz. At 20x 2026 EV/EBITDA we estimate WPM is discounting ~$2,400/oz gold.”

The analyst goes on to put a Buy rating on WPM, along with a $78 price target that suggests an upside of 24.5% on the one-year time horizon.

Overall, Wheaton gets a Strong Buy consensus rating from the Street, based on 11 recent reviews that break down 9 to 2 favoring Buy over Hold. (See WPM stock forecast)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.